The Trade Gap Widens Sharply in January - March 7, 2013

The U.S. Commerce Department reported earlier this morning that the nation's trade gap had widened notably in January, surging from the downwardly revised $38.1 billion in December to $44.5 billion during the first month of 2013. Initially, the December figure had been estimated as a deficit of $38.5 billion.

Breaking the report down, we find that exports, which have long helped to drive this understated business expansion, decreased to $184.5 billion in January from $186.6 billion in the prior month. At the same time, imports rose to $228.9 billion in January from $224.8 billion in December. The nation's gross domestic product is calculated by taking all domestic activity adding in exports and backing out imports. The widening of the imbalance to start this year will hurt growth in the current period, albeit slightly.

Among our trading partners, the goods deficit with Canada increased during January, as prices on imports of crude oil rose during the month. Also gaining last month was the deficit with China, which increased from $24.5 billion in December to $27.8 billion in the latest month. However, the trade deficit with struggling Europe eased nominally in January.

All in all, this was a somewhat disappointing report, but was not a surprising turn of events given the escalation in oil prices to start the new year. It seems as though when business activity picks up, so does oil, and our trade deficit widens.

This report, however, doesn't change things all that much and we still see the nation's pace of economic growth quickening a bit in the current quarter, reflecting a better showing on the inventory accumulation front, recent improvements in both manufacturing and non-manufacturing, and the continuing stellar recovery in the housing market.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.